|
Information > Financial Terms > This page Financial Intermediary The exchange of money between borrowers and lenders in the credit market is accomplished either from a direct exchange of credit between borrowers and lenders or from an indirect exchange through a financial institution. When lenders lend their money directly to borrowers by purchasing an IOU from a borrower in exchange for money, direct borrowing occurs. When lenders deposit their money in or purchase an IOU from a financial institution, and thereby allow the financial institution to lend the money to borrowers, indirect borrowing occurs. With indirect borrowing the ultimate source of the money is not the financial institution, but rather the lender who deposited their money in the financial institution. These financial institutions are also called financial intermediaries because the institution intermediates (comes between) in the exchange process by bringing together the borrower and the lender. Financial intermediaries include banks; savings and loan institutions; credit unions; money market mutual funds; and mutual savings banks that accept deposits, make loans, and provide other financial services. The appended table shows the total assets of financial intermediaries for periods from 1960-1985. Financial intermediaries that do not accept deposits but do provide services include financial companies which make loans and insurance companies which provide financial services such as insurance against the loss of life and property. Back to Information |